In June 2007, the stock price of Radian Group was at $64 a share, close to its all-time high and Radian was moving toward a merger with a fellow mortgage insurer that would have created an almost $12 billion company.
One year later, the merger was off, Radian share prices were in steep decline — tumbling below $1 a share early this month — and Standard & Poor’s had downgraded the group’s credit rating from A- to BBB. The sub-prime mortgage crisis had hit hard.
In the midst of this crisis, S.A. Ibrahim, CEO of Radian, a Philadelphia-based credit risk management firm, honored a commitment he had made 12 months ago to speak about leadership at the recent 12th Annual Wharton Leadership Conference. “On reflection,” Ibrahim said with a self-deprecating laugh, “What could be more relevant than hearing about leadership from someone in the middle of a multitude of challenges?”
Ibrahim, 56, has been CEO of Radian since May, 2005.”We are in the credit risk business. As you can imagine we have had to deal with a lot of challenges the last year,” said Ibrahim, noting that Radian Group’s total credit and default risk exposure stands at approximately $160 billion, with $45 billion of that coming from the group’s mortgage-insurance subsidiary, Radian Guaranty. Radian Group has more than 800 employees and offices in Australia, Hong Kong, London and New York, according to the company’s website.
While dealing with regular-sized challenges is difficult even in good times, Ibrahim said, “Dealing with greater challenges — while at the same time your stock price is down — is more difficult than you can imagine. But deal we must. Persevere we must.”
Although Ibrahim said during his presentation that he could not give more specific details about his company’s response to the crisis because of its announced intention to consider raising capital, the company has recently taken several steps to reverse its decline. For example, earlier this month, Radian shook up senior management in Radian Guaranty, setting as a priority the goal of regaining a AA credit rating (from its A rating this spring), said Ibrahim in a statement when the announcement was made.
Radian Group, of course, is only one among many credit-related firms that have been severely hurt by the subprime crisis. Shares of the Milwaukee-based MGIC Investment Corp., the country’s largest provider of mortgage insurance and the firm which Radian had planned to merge with, have fallen in value more than 90% in the last year. Another mortgage insurance provider, the Winston Salem, N.C.-based Triad Guaranty, had its credit rating cut to junk level in July 2008, and subsequently stopped issuing any new policies.
In his speech, Ibrahim described the current crisis as a “downcycle” and said Radian is looking forward to “a better tomorrow as this cycle inevitably bottoms out and turns upwards.” But he admitted that when the storm first appeared on the horizon, he and others in the industry assumed it would pass quickly. “The economy was strong, and most economic forecasts did not suggest a deep housing decline. The prevailing thinking was that only a handful of companies would be significantly impacted, primarily the small mortgage lenders out West. And Orange County, California, seemed like a long way from Philadelphia.”
Today the subprime crisis “has turned into a raging housing-credit-and-capital-markets storm of global proportions,” he said. “It is a storm that has engulfed many large and small companies, and a storm whose passing is likely to permanently alter the housing, credit and risk markets in ways that remain to be seen.” The two key questions industry leaders now face are when the storm will pass, and what the landscape will look like in its wake.
Losing an Inheritance
Growing up in a merchant family in Hyderabad, India, Ibrahim said his first role model was his grandfather, an orphan whose inheritance was misused by his uncles. His grandfather started selling hardware on the sidewalk, eventually creating a business that became the largest of its kind in the state of Andhra Pradesh. “He never complained about his uncles having spent his inheritance. Instead he focused his energies on what he could do positively and built a successful business from scratch.”
His grandfather’s example offers a lesson for leaders of financial companies whose valuations have been “decimated” by the subprime fall out, said Ibrahim. “We have a choice. We can either complain about our circumstances and the unfairness of those circumstances and allow them to paralyze us, or we can focus on continuing to move our companies forward.”
As a child and young adult, Ibrahim juggled the sometimes conflicting goals of his parents; his father expected him to assume responsibilities in the family business, while his mother sent him to academically rigorous schools to prepare him to succeed in the world beyond the family business.
The leadership lesson of having to meet both of his parents’ expectations, said Ibrahim, “is that you could do seemingly impossible things if you accepted the fact that you had no choice but to do them. As we leaders face our own doubts and the doubts of our colleagues, and as we face seemingly possible situations, we can either surrender before starting and never find out if the situation was truly impossible, or challenge ourselves and our colleagues to keep moving forward.”
Ibrahim completed an undergraduate engineering degree in India and came to the U.S. to earn his MBA from Wharton in 1978.
In the mid-1990s, Ibrahim headed reengineering on four continents for American Express’ Travel Related Services Company. In 1997, he joined the New York-based GreenPoint Financial Corp., where he was CEO of mortgage business during the company’s acquisition of Headlands Mortgage in 1998. From 1999 to 2005, Ibrahim served as CEO of the subsidiary GreenPoint Mortgage Funding, which stopped issuing new policies in August 2007. In addition to serving on several boards of directors, he has also been a member of Fannie Mae’s National Advisory Council since 2004, and has held positions at Chemical Banking Corporation and Bank of America.
He frequently mentions the inspiration he draws from American traditions, such as the creation of the U.S. Constitution. “If you talk about dealing with uncertainty and dealing with a tough situation, you can’t think of a tougher situation than where people came in and put their life in peril by signing a document that was a breakthrough,” he told The Philadelphia Inquirer in a July interview. “They were people who were drawn from everyday walks of life. And they rose to the occasion and did extraordinary things.” He has seen that sort of dedication at Radian during the subprime crisis. “I look around this company, and I look at people who should be debilitated by what’s happening around them, who rise to the occasion and say, ‘I can deal with this…”
Ibrahim recalled in his Wharton presentation how, when he worked in several executive-level positions for GreenPoint between 1997 and 2005,his team was able to look at as many as 12 new business ideas a week, launch new projects in two to three weeks, and offer 300 product changes a year — abilities that put the company far ahead of its larger competitors.
When people asked him how GreenPoint was able to achieve such results, he would answer with the example of how a Japanese child memorizes 300 kanji characters, while an American child, who learns an alphabet with 26 letters, might consider memorizing 300 characters almost impossible. “The Japanese kid never knew there was anything other than 300 characters, so he does it.”
His own team at GreenPoint,he said, was not comprised of people who were particularly brilliant. “On the contrary — and I don’t mean this in a demeaning sense — we had very nice, ordinary people. But they did things that were extraordinary, just because maybe they didn’t know any better, or the processes of the organization focused on getting them to do those things rather than doing other things.”
The role of the leader in coaxing this level of performance from a team involves three things, he said: setting the vision and direction; rallying the organization behind that direction; and then encouraging and rewarding extraordinary performance. “What separates a leader from a manager is the ability to inspire others to go beyond the limits that they and others may have set for them,” he said. And when it comes to inspiring people, said Ibrahim with a chuckle, “I’ve often found that an apt quote helps get people moving when they get stuck.”
A board member of the Institute for International Education, a New York-based nonprofit that administers the Fulbright program among many others, Ibrahim is amazed at the increase in the number of international students in American business schools since he attended Wharton in the 1970s. Such globalization means that leaders need to be able to inspire people across cultures, he said. “The one language all people understand is passion. I’ve always been intensely passionate about my business and my people. This has enabled me to work with people far more brilliant and capable than I, and to get them to overcome their inner barriers.”
An Important Birthday
The subprime crisis may be less emotionally stirring than, say, a terrorist attack or natural disaster, but it is no less of a testing ground for leaders. Speaking of how Radian Group is handling the crisis, he said, “I never cease to be impressed by how our leaders constantly rise to deal with every situation we encounter. I’m also amazed at how new challenges breed new leaders. These are the leaders who will make the realization of a better tomorrow a reality for us.”
Yet crisis brings stress, and Ibrahim said he has tried to maintain a personal life even in the midst of dramatic market shifts. His family was gathering in Hyderabad to celebrate his mother’s 75th birthday this spring, right when his first-quarter investor call was scheduled. Ibrahim arranged to conduct the call from Hyderabad rather than cutting his trip — and his time with his family — short. “You have to find the right balance because you’re human beings, and you can’t allow your life to drift too much to one side,” he told the Inquirer, mentioning that he spends some weekends at the home he still keeps in California, where he likes to pick raspberries in the backyard.
“Part of being a leader is that not everything succeeds,” he said. “In the words of Winston Churchill, ‘Success is the ability to go from one failure to another with no loss of enthusiasm.'”